Riverside County pension costs rise $22 million

Riverside County's pension costs are projected to rise $22 million next fiscal year to $203 million, but the increase would have been even higher had the Board of Supervisors not adopted a package of reforms in 2011, according to a new report.

Reforms are expected to generate savings of $75 million in fiscal year 2013-14, which begins July 1, preventing costs from otherwise soaring to $278 million, the annual Pension Advisory Review Committee report shows.

"That shows you the importance of the reform we did," Supervisor Marion Ashley said in a telephone interview Friday. “It could have been a lot worse.”

Human Resources Director Barbara Olivier, who serves on the panel, said the county can shave costs by $3 million, to about $200 million, if it elects to prepay a large chunk of its pension obligations.

Supervisors will be asked to authorize prepayment when they receive the 51-page report Tuesday.

The report was prepared by Bartel Associates of San Mateo, the county's consultant on pension matters. Retirement benefits are managed for county employees by the California Public Employees' Retirement System, or CalPERS, which is the nation's largest public pension program.

The debt, or unfunded liability, is projected to be $1.01 billion as of June 30, the report states. That compares to assets of $6.1 billion.

The pension debt had been building. Listed as $995 million in 2010, the debt reached $1.06 billion in 2011 and $1.14 billion last year, officials said earlier.

Although the roughly $1 billion debt is concerning, the report emphasized 85 percent of the retirement program is funded. The report says the industry benchmark for a financially sound program is 80 percent.

The deficit includes $347 million owed on bonds sold in 2005 to ease financial pressure on the retirement system, according to the report.

"... The county is basically breaking even ---- the county has a $5 million net savings ---- as a result of the sale of the bonds," the report states.

As for the annual pension cost, it rose in part because CalPERS isn't generating the returns on investments that it expected, and is raising rates on participating government agencies.

"It’s too bad it went up," Ashley said. "But we knew it was going to go up because CalPERS lost all that money during the 2008 crash. They’re going to make us bite their bullet.”

One of the more alarming trends is the portion of county payroll dedicated to retirement.

The county divides its retirement plan between two sets of employees: miscellaneous and safety. Safety covers law enforcement officers and other public safety employees; miscellaneous takes in everybody else.

As a percentage of payroll, the cost for the large miscellaneous group is expected to rise from 13.5 percent this year to 15 percent in fiscal 2013-14, the report states.

The safety cost is expected to approach one-quarter of payroll, increasing from 22.5 percent to 23.4 percent.

"Is it a concern? Yes. It’s expensive," Olivier said. "But overall we are paying less into CalPERS."

The report estimates the county will save $75 million in fiscal 2013-14 as a result of the board's move to reduce benefits by one-third for employees hired after Aug. 23, 2012, and to phase out the practice of making contributions to CalPERS on behalf of workers' personal pension obligations.

Although workers have begun to make contributions out of their paychecks, some are paying more than others, depending on the labor contracts they are under.

“Each union has a different schedule," Olivier said. "But everybody is paying at least 4 percent at this point.”

By 2014, every employee will be contributing close to one-tenth of his or her paycheck. That alone is expected to generate annual savings of $70 million, the report states.

The county also will realize savings ---- modest initially and significant later ---- as the number of recently hired employees who will received reduced benefits multiplies.

The county has 18,000 full-time employees and the vast majority were hired before August 2012. They have the ability to qualify for pensions equal to 90 percent of final salaries, if they put in three decades. New hires will qualify for 60 percent of pay after 30 years.

Factoring in reforms, the report projects annual savings to grow to $79 million in fiscal year 2014-15, $84 million in 2015-16, $92 million in 2016-17 and $100 million in 2017-18.

“As we go along, those reforms are really going to save us from being wiped out," Ashley said.

That doesn't mean pension costs aren't going to continue rising; they are. And for the next couple of years, some savings will be cancelled out by raises supervisors promised to get unions to acquiesce to reforms.

Nevertheless, increases will be more gradual than they would have been, the report states.

Pension costs are forecast to reach $222 million in 2014-15, $231 million for 2015-16, $236 million in 2016-17 and $239 million in 2017-18.

The Board of Supervisors is scheduled to meet at 9 a.m. Tuesday in the first-floor auditorium of the County Administrative Center, 4080 Lemon St., Riverside.